Australia / Analyst Insights
Good Deal: New Opportunities Unlock Growth for Private Equity

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by Matthew Barry
Jul 01 2019

Australia’s private equity sector has recorded moderate revenue growth over the past five years. Private equity firms have successfully exited investments over the period, realising capital gains and fuelling sector earnings. The substantial decline in the cash rate over the past five years has reduced borrowing costs and given private equity firms potential for greater leverage, supporting sector revenue growth. However, private equity and venture capital firms have faced difficulties finding future acquisition deals over the past five years, constraining the sector’s growth. Overall, sector revenue is expected to rise at an annualised 2.4% over the five years through 2018-19, to $413.8 million.

“Many players have capitalised on the domestic sharemarket's recovery over the past five years, and have consequently either sold or floated investments in their portfolios. A steady decline in the cash rate over the period has reduced domestic interest rates, providing private equity firms with greater scope to fund leveraged buyouts or invest in new projects through greater debt,” said Senior Industry Analyst, Yin Huey Yeoh.

The private equity sector is forecast to grow steadily over the next five years as more investment opportunities emerge in popular high growth sectors, such as technology and life science. In particular, Australian financial technology (fintech) companies are projected to grow strongly over the period, boosting investment activity. Furthermore, private equity firms are anticipated to float or sell their stakes in high growth companies over the next five years, including those specialising in fintech and cloud computing. As a result, sector revenue growth is forecast to be driven by firms successfully exiting these investments. The private equity sector has seen an influx of foreign investment over the past five years due to the relative attractiveness of prospective deals in the Australian market. Large injections of foreign investment are anticipated to further support sector revenue growth over the next five years. Sector revenue is projected to grow at an annualised 4.7% over the five years through 2023-24, to $519.8 million.

Private equity firms are forecast to record large capital gains over the next five years. A favourable sharemarket environment and strong growth among technology businesses are anticipated to boost earnings for private equity firms over the period. Furthermore, continued low interest rates are projected to further increase private equity firms’ leveraging power, creating more opportunities for the sector.

As more investment opportunities arise, private equity firms are anticipated to face intensifying competition from distressed debt investors and major banks seeking to acquire high-growth companies. This trend may constrain the sector’s future growth, as prospective acquisitions could be secured by competitors. Private equity firms have tried to manage external competition through building their reputations over the past five years. This activity has allowed them to raise larger pools of funds and increase their market share.

IBISWorld reports mentioned in this release:

Private Equity in Australia